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Low silver prices plague Greens Creek.

Being the largest silver mine in North America is a prestigious ranking, but officials at the Greens Creek Mine on Admiralty Island in Southeast Alaska find themselves striving more than ever to cut costs, improve productivity and product quality under the spector of a 17-year low in silver prices.

Mine officials this spring announced the project has five times as much ore as originally projected. But that might not translate into positive, profit-making news unless silver prices improve. Because of the added ore reserves, as well as the fact that some waste-disposal sites were used up more quickly than initially figured, mine officials and the U.S. Forest Service are searching for additional sites to dump waste rock.

The present waste-rock disposal sites will last only about another four months, Forest Service officials say. According to mine officials, it's crucial waste-rock sites before the year is over.

When the mine opened in February 1989, the Forest Service's environmental impact statement for the project said the time had at least 3.5 million tons of ore. Based on that figure, the mine was expected to produce for 17 years. The reserve estimates later was upgraded to 4.7 million tons of ore - further stretching the life of the mine.

This spring, however, mine officials told the Forest Service that an additional 14 million tons ore were discovered. Greens Creek managers also announced that they were going to study the feasibility of expanding the project. If Greens Creek officials decide to mine the additional reserves, the Forest Service would have to reopen its environmental impact statement process.

Mine officials say there are not prepared to discuss expansion at this time. Greens Creek manager Cliff Davis says the mine has been quiet about the discovery, because the reserves only are considered useful ore given the right metal prices.

But the price of silver per ounce, though better than earlier this year, is not likely to rally anytime soon, metal analysts say. Warren Myers, vice president of capital markets for Merrill Lynch & Co. in New York, says the price of silver earlier this year had almost "fallen off the edge of a cliff."

Silver's peak price in 1990 was $5.53 an ounce, while silver has averaged about a dollar less than that so far in 1991. Greens Creek, however, has the advantage of financially strong mining companies as partners in the Admiralty Island project, Myers notes.

Kennecott Corp. of Salt Lake City, Utah, owns 53 percent of the mine. The firm is a subsidiary of Rio Tinto Zinc Corp. of London, a major worldwide minerals player.

"Despite the fact that the silver price has fallen . . . I think (Greens Creek) is nicely in the black in,," Myers comments. "The whole operation appears to be pretty well run."

But officials at the mine say "nicely in the black ink" is too optimistic. In May, the company reduced its workers' nine-hour-shifts by one-half hour per day, eliminating a half-hour of overtime pay. Officials also cut the $25 daily stipend workers used to received for the 45-minute boat and bus trip to the mine, about 20 miles west of Juneau. Further, mine officials implemented a wage freeze for 1991.

"Nobody is happy, which is pretty obvious," Davis says. "But I believe that the majority of our employees understand that it's a difficult time we're trying to get through and it's better that we all make some sacrifices to try and keep the operation viable, rather than see it go under."

Some employees viewed the cuts as suspicious in light of failed union elections in February, but Davis insists cuts were necessary regardless of the election results. "The timing is lousy; there's never a good time to do this sort of thing an there's never a time to be faced with the economic situation we're faced with," he says.

Greens Creek employees overwhelmingly rejected a trio of labor unions - The United Mine Workers, Juneau building Trade-Alaska Mining Division and the United Steelworkers of America. Of 194 workers who voted, 141 opted for no union. There are about 250 Greens Creek employees.

Silver's Setbacks. Davis points out Greens Creek is not alone in battling the low price of silver. Mining operations in Northern Idaho and Eastern Washington also have been faced with cutbacks and closures. "We cannot ride it out without taking some steps," he says.

Though times may be lean at the mine, Merrill Lynch's Myers says after visiting Juneau last year to look over the Greens Creek property, he was impressed with the skill of the miners and efficiency of the operation. Myers toured the mine because he tracks Hecla Mining Co. of Coeur d'Alene, Idaho, for Merrill Lynch. Hecla is a 28 percent owner of the Greens Creek mine. Besides Kennecott and Hecla, the other owners are CSX Energy Inc. of Virginia, with a 12.6 percent interest, and Exalas Resources of Toronto, with 6.3 percent ownership.

Hecla has not escaped the impacts of low silver prices either. The company closed some of its mining operations in Idaho earlier this year because of the silver dip.

Davis won't comment on Greens Creek's production costs per ounce or say how low the price of silver would have to drop before the mine would be forced to close. Mine officials say no work-fofrce reductions are planned and that rumors about the mine closing "are completely without foundation."

Juneau has much at stake with Greens Creek. The mine is the largest private-sector employer in the Juneau area, pumping approximately $14 million annually into the economy in employee pay and benefits alone.

Greens Creek, in its second full year of production since opening in February 1989, still has areas that could benefit from fine-tuning, Davis says. For instance, the mine is experimenting to improve the ore-separation process. "The better quality products we produce, the better price we can get for those products from the smelters," he notes.

Greens Creek produces three products: a lead concentrate, a zinc concentrate and a combined low-grade lead and zinc concentrate. Each contains different amounts of silver and gold.

Greens Creek in 1990 mined about 385,000 tons of ore and produced about 7.6 million ounces of silver, 38,000 ounces of gold, 37,000 tons of zinc and 16,500 tons of lead, according to a 1990 report on Alaska's minerals industry from the state Division of Geological and Geophysical Surveys. Every ton of ore mined at Greens Creek contains about 22 ounces of silver and about 0.1 ounce of gold, Davis says.

The statewide estimate of mineral production value, which does not reflect what mining companies actually net rom smelters, was $534 million in 1990, nearly double the $277 million value reported in 1989.

Al Clough, a geologist with the state Department of Commerce and Economic Development in Juneau, says Greens Creek's gross value of metal produced was about $126 million, based on the amount of metal mined last year and each metal's average price. He cautions, "That doesn't mean that's actually what Greens Creek got paid for it."

Market Lethargy. Although the mine doesn't rely solely on silver, the values of other metals it produces -- gold, zinc and lead -- also are on a downturn, Clough notes. Zinc last year went for about 70 cents a pound, compared with a June average price of about 50 cents per pound. A pound of lead last year sold for about 37 cents, and in June was fetching about 6 cents less than that. Gold, of course, has been trading at around $360 for most of 1991 -- $100 less than about 10 years ago.

But silver is the money-maker at Greens Creek, and there are several reasons for its low price. Since 1987, the surplus of new supply over the amount of silver used each year around the world has steadily declined, to around 9 million ounces in 1990, according to a survey from The Silver Institute in Washington, D.C.

Although the lowest silver surplus in recent years, it's still a surplus, notes Merrill Lynch's Myers. in addition, fears of recession have scared away many investors, leaving manufacturing demand as practically the sole force behind the silver market.

The photographic industry is the largest source of that demand, and even during recessionary time people continue taking pictures, Myers says. But silver is also used heavily in the electronics industry, which was hit hard by this year's recession.

On Jan. 17, after the first of the allied sorties returned from successful bombing missions in the Persian Gulf war, silver dropped to $4 per ounce. The market took the view that the war would be relatively short and would end with a U.S. victory, Myers says. Silver traded below $4 for a number of months, but recently has inched well above that mark.

Vahid Fathi, a metals and mining analyst for Prescott, Ball and Turben in Cleveland, Ohio, says he doesn't expect to see today's prices change much in the near future. "There is simply too much silver being produced, far and above what is needed to satisfy the industrial demand and whatever little investment demand is left," Fathi explains.

Clough agrees the mine won't see the price of silver shoot up any time soon. "Nobody has projected any big turnaround in the next 12 months," he says.

One reason there is so much silver on the market is that the precious metal is often mined as a byproduct of other minerals mining, says Juneau economist Jim Calvin of the McDowell Group. "Even when the price of silver collapses and silver mines in Idaho close, there's still all this silver being produced in gold mines and lead mines and zinc mines," Calvin says. "They're going to mine it and produce it anyway because it's just gravy for their operation."

Meanwhile, it's important to keep Greens Creek's additional 14 million tons of ore in the proper perspective, Clough says. He classifies the reserve as "inferred," meaning the estimate is better than a wild guess, but that more drilling and core samples are needed.

For now, Greens Creek just hopes to remain a viable operation and ride out the silver lows for an ensured long-term future. Davis says, "We would hope that the present metal prices are a temporary phase, but they are severe enough and they've gone on long enough that they've affected profitability of the operation."
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Title Annotation:Special Section: Mining's Rough Ride; Greens Creek Mine on Admiralty Island, Southeast Alaska
Author:Ripley, Kate
Publication:Alaska Business Monthly
Date:Sep 1, 1991
Previous Article:The prospect of legislative change haunts the mining industry.
Next Article:Revival of Juneau-area gold mines still stalled.

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